Dan Hall: We bought then; we’re paying now

Friday

Jul 25, 2008 at 12:01 AMJul 25, 2008 at 5:28 AM

Over the past 60 years of growing prosperity, we, the American people, grew overly comfortable, feeling entitled to a life of luxury and ease. We consume far more than we produce, and we pay for it on credit. A nation that once spoke of the sin of self-indulgence succumbed to the slogan “buy now, pay later.”

Dan Hall

David Brooks had an excellent essay in The New York Times last week describing America’s evolution from a culture of thrift to a culture of debt. I was a witness to the change.

When I was growing up in Detroit in the early 1950s, my parents did not have a checking account, much less any credit cards.

Well, OK. They did have one. Whenever my father was laid off from his job in the factory, a familiar event among dads in my circle of friends, the neighborhood grocer, a man named Bill, would allow him to buy the necessities just by signing the cash register slip. My parents were embarrassed to do that, however, so they would deputize me to hop on my bike, pick up a few groceries, and sign the slip. Bill would stuff it in a cigar box, to be paid when the factory reopened.

Thus was born in me not just an aversion to debt, but a visceral fear of it. I never took student loans for college, preferring to take a semester off to find work when I needed to raise cash. (That was easier then, I’ll admit, because college costs so much more now.)

When I was 24 or 25, I broke my “no credit” rule. I bought my first brand-new car, a VW Beetle, by paying 50 percent down and financing the rest. When I went to sign the papers, I felt so agitated and sick that I almost walked out. Six or seven more years passed before I got my first credit card.

Now, my wife, Diane, and I live as probably 99 percent of all reasonably affluent Americans do: We rarely carry cash. We buy everything from ice-cream cones to car repairs on debit cards linked to our checking account. If we exceed our balance, no problem, the cards access a line of credit (though we don’t carry over a deficit from one month to another.)

Using credit is not inherently bad. From a macro view, it is essential to capitalism, and capitalism has been the world’s most dynamic economic engine for 500 years. From a micro view, I didn’t suffer anything other than angst from buying my Beetle on credit. It cost a little more, but it enabled me to enjoy a new car three years sooner than if I had saved to buy it with cash. Most of us could never buy a house without taking out a mortgage, and most of us profit hugely from that investment.

I was not entirely wrong, however, to fear borrowing money. The excesses of Americans’ reliance on credit are at the root of the nation’s current financial crisis. The economic futures of millions of people are on the line.

Now, Brooks writes, we’re looking for someone to blame. Some point at the irresponsibility of borrowers who went in over their heads. Others point toward predatory lenders who seduced people with offers of credit that were too good to be true.

Both views hold plenty of truth. In addition, Congress or perhaps criminal prosecutors should look at the banks and investment firms that figured out ways to buy and sell billion-dollar bundles of bad loans using arcane methods to leverage money 50 or 60 times beyond what they actually had.

There is, however, one more place to put blame: Over the past 60 years of growing prosperity, we, the American people, grew overly comfortable, feeling entitled to a life of luxury and ease. We consume far more than we produce, and we pay for it on credit.
A nation that once spoke of the sin of self-indulgence succumbed to the slogan “buy now, pay later.”

American families have the highest level of personal debt and the lowest rate of savings of any country in the industrialized world. We have been content to allow even the government itself to run that way.

“Each time an avid lender struck a deal with an avid borrower,” Brooks writes, “it reinforced a new definition of acceptable behavior for neighbors, family, and friends. In a community, behavior sets off ripples. Every decision is a public contribution or a destructive act.”

Or, as the comic-strip character Pogo famously said, “We have met the enemy and it is us.”

A few months ago, Canandaigua, N.Y., chose “The Great Gatsby,” F. Scott Fitzgerald’s novel of the financial excesses of the Roaring ’20s, as this year’s “community read.” The similarities between that era and our own made it a prescient choice.

Americans learned some hard lessons in 1929, when the stock bubble burst and set off the Depression of the 1930s. Now we may relearn those lessons — although, we can hope, without the necessity of a depression this time.